In typical American homes, the water heater uses more energy than any other appliance except for the heating system. Depending on local energy prices, a family of four spends between $200 and $500 per year for heating water. For many families, this represents a significant portion of their utility bills.

For most households, the energy used to heat water can be reduced by 25-50 percent through conservation. This amounts to a savings of approximately $50-$250 per year at current rates.

Assuming only the minimum savings of $50 per year, it would easily make sense to spend up to $200 improving the energy efficiency of your hot water heater. It should be possible to insulate your water heater and a substantial amount of hot water pipes for this amount of money. Reducing the temperature of the hot water tank is also an easy way to save.